Marshall Corporation has $30,000 of bonds outstanding with a carrying value of $38,400.The bonds are converted into 15,000 shares of $1 par value common stock immediately after the last interest payment.The common stock had a market value of $5 per share on the date of conversion.The entry to record the conversion would include a credit to:
A)Common Stock for $15,000 and credit to Paid-in Capital in Excess of Par for $8,400.
B)Bonds Payable for $30,000 and credit to Premium on Bonds Payable for $8,400.
C)Cash for $38,400.
D)Common Stock for $15,000 and credit to Paid-in Capital in Excess of Par for $23,400.

Question

Quizplus · Accepted Answer

The carrying value of the bonds (which includes any premium or discount) is $38,400, and since the bonds are being converted into common stock, the credit would go to Common Stock. The par value of the common stock is $1 per share, so 15,000 shares at $1 per share would be $15,000. The difference between the carrying value of the bonds and the value of the common stock is $23,400, which would be credited to Paid-in Capital in Excess of Par. Therefore, the entry to record the conversion would be a credit to Common Stock for $15,000 and a credit to Paid-in Capital in Excess of Par for $23,400.

Marshall Corporation Has $30,000 of Bonds Outstanding with a Carrying